Would Peter Lynch Love Fitbit?

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”Read More.

I just spent almost a year with a Fitbit Flex on my wrist. My wife bought us a matching pair for my birthday last October, and we were excited about tracking our fitness. The good news is I am 10 pounds lighter than I was a year ago. How much of that is attributable to the Flex is up for debate.

Perhaps the more interesting question for an indexer like me is whether this is a stock worth buying.

Stock pickers could do worse than following the model developed by investing legend Peter Lynch. He didn’t merely excel at "Beating the Street" -- he trounced it. At Fidelity Magellan, the fund he ran, his returns averaged 29.2 percent annually during a 13-year span. Had you been lucky enough to put $10,000 into Magellan when Lynch took over the fund in 1977, it would have grown to $247,000 by the time he stepped down in 1990; an initial investment of $37,000 would have made you a millionaire.

Lynch’s advice for investors was straight-forward: Invest in what you know and understand; expect to hold stocks for the long run; research investments thoroughly, focusing on company fundamentals; most important of all, look for companies with modest price-earnings ratios relative to growth (PEG ratio). A lower PEG ratio can indicate that a stock is inexpensive in light of its potential earnings growth.

Let’s use Lynch’s technique to look at the product (Flex) and the company (Fitbit). The idea of fitness trackers in general is great: You can't manage what you can’t measure. Having metrics that let you track your activities is both helpful and motivational.

The best aspect of my Fitbit Flex was the software: It is intuitive, letting you set a variety of goals (calories, miles, nutrition, steps, etc.). Mine was to walk 10,000 steps a day. I tried to consistently meet it. See the chart below to see how I did:

My Activity

The weakest feature, at least in my experience, was the hardware, just about every aspect of which disappointed. Plus, the resin wrist bracelet needed to be replaced in less than a year, which shouldn't have happened.

There were other issues. The Fitbit syncs with your phone and updates in real time. At least, it's supposed to. Sometimes it did and sometimes it didn't. I learned from other Fitbit users that this wasn't all that uncommon. It was very frustrating. Fitbit will replace a defective or damaged unit, but the process is time-consuming and way too annoying. I understand this is a $99 product, and I shouldn't expect Lexus-like service, but it seemed the intent was to discourage users from making repairs or replacement requests. I gave up after a while. But by this time my wife had become bored and gave me her Flex, which for some reason worked much better than mine. Sync problem solved.

I also had issues with the battery life. It lasts three to four days, which is a very unintuitive time span. A week would have been better. Making the device a few centimeters longer or thicker would allow for a larger battery.

Finally, the charger didn't always work. The contacts had to be just so, and occasionally failed to connect. Sometimes wedging in a paperclip would make the contact better and allow a charge. Eventually the plastic holder for the Flex stopped charging altogether.

That was pretty much the end of my Flex usage, a little shy of a year.

My takeaway is it's a great concept, good software, poor customer service, terrible hardware. Perhaps I have been spoiled by Apple, but the Flex feels like a product that’s not quite ready yet.

The company itself is expensive, with a P/E ratio of 72, although Lynch’s favorite metric, the PEG ratio, is 1.78. That’s lower than other major companies in the fitness business, such as Under Armour or Nike. NPD Data noted that Fitbit's market share in 2014 was a dominant 67 percent, which suggests it's likely to attract more competition. It's also a newly public company, having sold shares in June at $20 each. It now trades for about $38.

Because I didn't love the Fitbit, not to mention some indications that the shares are expensive, I suspect this isn't a company that Peter Lynch would have embraced.

I haven't turned against the concept of a fitness tracker. And maybe the mistake was buying Fitbit's 1.0 version. You probably should never buy the first iteration of any tech product. That's why I skipped the Apple Watch. When the 2.0 version comes out, it will likely be on my wish list.

I'd have to think hard about giving Fitbit another shot.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”Read more